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Dynamic sorting in durable goods markets with buyer heterogeneity
Author(s) -
Roy Santanu
Publication year - 2014
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12099
Subject(s) - inefficiency , valuation (finance) , durable good , quality (philosophy) , microeconomics , sorting , business , economics , commerce , finance , philosophy , epistemology , computer science , programming language
In a competitive dynamic durable good market where sellers have private information about quality, I identify certain inefficiencies that arise due to heterogeneity in buyers' valuations . Even if the market induces dynamic sorting among sellers and all goods are eventually traded, inefficiency can arise because high valuation buyers buy early when low‐quality goods are sold, while high‐quality goods are allocated to low valuation buyers that buy later. This misallocation adds to the inefficiency caused by delay in trading. Under certain circumstances, high‐quality goods may never be traded as in a static market.